Philippine economic growth will be better than the rest of the countries in Asia in the coming years, Standard Chartered has predicted, but added finance officials should be wary of possible asset-price bubbles.
Despite its bright prediction, Standard Chartered, in a research report released Tuesday, warned of an oversupply of money in the system and bubbles in asset prices.
“We are optimistic that the Philippines’ economic growth will outperform the region over the next couple of years,” Standard Chartered said in the report titled “Asia Leverage Uncovered.”
“However, the authorities need to remain vigilant to excessive liquidity inflows and potential asset price bubbles,” it added.
Standard Chartered placed the Philippines in the low-risk category and saw opportunities for further leverage.
“We expect credit growth to remain healthy and well managed in the next few years,” it said. “Although loan growth has picked up since 2011, the risk of over-leveraging is modest, in our view… Robust economic activity is likely to continue to support loan growth in the medium term, particularly for the corporate sector.”
Investopedia said overleveraging “occurs when a business has borrowed too much debt, and is unable to pay interest payments on the debts. Companies that borrow too much and are overleveraged are at the risk of becoming bankrupt if their business does poorly.”
Standard Chartered said corporate loan growth would be driven by investment growth under the government’s public-private partnership model, sovereign credit rating upgrades to investment grade, and bullish sentiment on the ground. It also said low domestic interest rates and flush liquidity will provide a supportive setting for economic activity.
Standard Chartered also said the country needs leverage to cover the shortfall in growth capacity caused by a sluggish investment climate and low per-capita GDP relative to neighbors like Thailand and Indonesia.
It said a reasonable level of loan growth with the proceeds used for productive investment builds productive capacity for the future.
“We believe the marginal benefits of current loan growth levels are high, given that the Philippines” investment-to-GDP ratio lags the region. However, a sustained increase from current loan growth rates over the medium term could drastically increase the risk of over-leveraging,” Standard Chartered said. — KBK, GMA News